With leverage no longer propping up demand, many analysts point to signs that we are either currently in, or are approaching a deflationary period, with some expecting this period to last up to 12 to 18 months (see Investment News article). Gary Shilling, who has written a couple of books on the topic of deflation, believes the period of deflation could be much longer, on the order of 5-10 years. In addition to providing a signal of lower consumer spending, and subsequently lower GDP, deflation also increases the impact of debt in real terms for both corporations and consumers. As for investment plays, analysts recommend looking at utilities, agricultural, and high-quality and in-demand consumer staples, in edition to U.S. Treasury bonds and good old fashion cash.

Barron's has an interesting article this weekend about whether the dollar is ready to rally - something that has recently been discussed quiet often in various television and print media outlets. Of interest from the article:

"In an April survey conducted by Merrill Lynch, 50% of global money managers said the greenback is undervalued, up from 30% three months ago, while a whopping 71% found the euro overvalued."

"Our own "Big Money" poll of nearly 120 money managers ... found most waiting for a massive unwinding of the recent short-dollar, long-commodity crush: Nearly three-quarters say they expect the dollar to rise against the euro over the next 12 months, while 66% see commodity prices falling in the next six months."

The article also mentions how reserve managers are unwilling to sell dollars at their current low levels, hinting that many feel we may be approaching a bottom, or at least at levels that they don't want to get caught selling at the low.

If the dollar does rally against the Euro and other currencies, investors can expect to see an effect on the price of oil and other commodities. Some estimates have 50% or more of the recent moves in oil, which is denominated in dollars, being currency driven. With any fall in crude oil, we may also expect to see some effect on metals/minerals and agriculture commodities. Agriculture commodities have inadvertently been linked to energy prices, along with the fertilizer companies which have benefited from their growth. Large multi-national industrial companies, which have benefited from selling cheaper products overseas, may also be impacted. Of course, there are always caveats. Regardless of currency moves, demand for both energy and commodities is still expected to stay strong. The large industrials, which will benefit from lower energy and commodity prices, will also see some tangential benefits that may help to offset currency moves.

Mosaic Q3 net income increased to $520.8 million from $42.2 million, while revenue is up 68%. Sales increased 68% to $2.15 billion from $1.28 billion. Mosaic recently announced a long-term potash capacity expansion in Saskatchewan, Canada.

As a side note: An analyst on CNBC, discussing the Mosaic numbers, recommend Compass Minerals International (CMP) as another play in the area, in addition to Potash and Agrium.

Tickers: MOS, POT, AGU, CMP

The U.S. Department of Agriculture is estimating that U.S. farmers will plant 8% fewer acres of corn this year. Farmers are shifting to higher-priced soybeans (us 18%) and wheat (up 6%). The journal is reporting that "A smaller corn crop is good news for farmers who could reap $6 a bushel this season, up from around $2 a couple years ago, if prospective corn acreage remains at the forecasted level and if a soggy spring keeps farmers in the Corn Belt out of the fields until later in the season."

In a previous post we mention how rain could caused soybeans to be planned instead of corn since they can be planted later. As such, the long corn, short wheat spread is still in play. As expected in the market, the seed and fertilizer companies are doing well, while those that need corn, such as the food producers, are taking a hit. Ironically, the ethanol companies are also finding margins squeezed as their feed-stock cost increase. Maybe Washington will final see the current folly of putting corn in our tanks, and not in our stomachs.

Agriculture Tickers: MON, POT, MOS, AGU